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Credit crisis is ‘far from over’

Bob Moon Sep 5, 2007
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Credit crisis is ‘far from over’

Bob Moon Sep 5, 2007
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TEXT OF STORY

Kai Ryssdal: It’s a bit like a cold dash of water right in the face, isn’t it. A couple of weeks ago, the Fed cut its discount rate. Things mostly settled down. But we learned today it ain’t over ’til it’s over.

Investors clearly have a ways to go before they’ll be feeling better. It’s tough to blame them, based on the evidence we saw today. First, there’s that big backlog of unsold homes the real estate market has to work its way through. Something that could take a while since banks and lenders will have to get over their own distrust of loaning out the money first.

Also today, a Bush Administration official warned that could take a lot more time. Here’s Marketplace’s Bob Moon.


Bob Moon: As the government sees it, the turmoil in the credit and mortgage markets is “far from over.” That was the assessment from Treasury Undersecretary Robert Steel, in testimony before the House Financial Services Committee.

Panel members from both parties gave voice to the nagging worries investors have that there may yet be trouble ahead. New Mexico Republican Steve Pearce likened it to flying a plane through turbulent skies.

Steve Pearce: Sometimes, you get a little tremor and that’s it, that’s the last you feel of it. Your wing might be about to fall off, but it’s the only indication you’re gonna have.

For now, though, the problem is the fate of the economy is still very much . . . up in the air.

The Treasury Undersecretary told the panel “policymakers must remain vigilant” for what he called “further challenges and continued volatility.” At the same time, Robert Steel said there’s no sign of a recession.

Robert Steel: Our view at Treasury is that the economic growth that’s been going on in the second quarter will continue with a positive trajectory into third and fourth quarter, and the economy seems strong.

But money manager Hugh Johnson says the ongoing uncertainty in the credit markets keeps the pressure on Fed Chairman Ben Bernanke and his team to lower interest rates at their next meeting in a couple of weeks.

Hugh Johnson: There has to be something that instills confidence that we’re gonna work through this very difficult period in an orderly fashion. And quite frankly, I think it really depends on what the Federal Reserve does.

Today, though, the Fed’s own “Beige Book” report concludes that even though the housing slump has “deepened,” there’s been little effect so far on the overall economy. That could mean less-aggressive interest-rate moves than investors want.

In Los Angeles, I’m Bob Moon for Marketplace.

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